Bitcoin Stares Down Impending Apocalypse (Again)

Illustration: T.A. Gruneisen/WIRED

In the global arms race known as bitcoin mining, there’s success, and then there’s an excess of success.

That’s what a company called CEX.io discovered yesterday when it abruptly stopped accepting new machines into its consortium of bitcoin miners. The consortium — known in bitcoin circles as a pool — was running such a large portion of the worldwide computer network that oversees bitcoin, people were beginning to worry that CEX could corner the market and gain control of the digital currency. The whole idea behind bitcoin is that isn’t controlled by any one central authority.

Now that the CEX has pulled back on the throttle, the bitcoin world can rest a little easier.

Now that the CEX has pulled back on the throttle, the bitcoin world can rest a little easier.

Anyone can help drive the bitcoin network by contributing the processing power of their own machine, known as a miner. And to encourage the practice, the system regularly doles out new bitcoins to these miners. It’s a bit of a crap shoot — 25 bitcoins get paid out to one lucky miner about six times an hour. But you can make money in a more predictable fashion if you sign up with a pool of miners like the one operated by CEX and split the profits.

The trouble is that if any one of these pools takes over 51 percent of the network, it can — in some ways — take command of the digital currency. It could, say, spend the same bitcoin twice, something known as the double-spend attack. That, in turn, would undermine confidence in the cryptocurrency, destroying its value.

That’s why, early Thursday, the popular internet discussion forum Reddit started filling up with posts from bitcoiners urging miners to drop out of CEX’s mining pool, which is called Ghash.io. CEX quickly issued a statement, acknowledging that it controlled more than 40 percent of the network and that if it gained much more power, people would be right to be worried.

Bitcoin miners track all transactions involving the digital currency, but they also compete for new bitcoins by trying to complete billions of random calculations. That’s the part that works a bit like a lottery. The more calculations, called hashes, you can do, the better your chances of winning.

But even CEX agrees that these pools shouldn’t get too big. “Although the increase of hash-power in the pool is considered to be a good thing, reaching 51 percent of all hashing power is a serious threat to the bitcoin community,” the company said in its statement. “GHash.io will take all the necessary precautions to prevent reaching 51 percent of all hashing power.”

Gavin Andresen, the lead developer of the bitcoin software that runs across the world’s miners, says that he’d like to see bitcoin mining become less centralized, but that he doesn’t see the GHash.io issue as a cause for concern. The bitcoin community has previously defused the problem with both the DeepBit and BTC Guild mining pools.

“I tend to ignore mining because the incentives are correct,” he says. “Big miners and mining pools would be stupid to do things that undermine confidence in bitcoin and make their investment worth less. I predict history will repeat itself, and the current panic over GHash.IO will self-correct over the next few weeks.”

Andresen says that bitcoin mining could become less centralized if more miners used software called P2Pool which is designed to avoid the 51 percent problem entirely. “I expect when P2Pool is made easier to install and run,” he says, “that will happen.”